NeighborsSunday BusinessMirror
A4 Sunday, January 10, 2010
www.businessmirror.com.ph
Unprepared, unfunded, RP at the frontlines, facing free-trade fire from dragons
Leaders link arms during a photo session for the 4th East Asia Summit at the Association of Southeast Asian Nations Summit in Cha-am, Thailand, in this October 25, 2009, file photo. The Philippines has been at the forefront of the major negotiations for free-trade agreements Asean last year, but like its fellow developing countries, must brace for the rough winds of competition as these accords start to take effect this month. Yonhap News via Bloomberg
By Estrella Torres
T
Reporter
wo dragons are ready to breathe fire at the doorsteps of the Southeast Asian countries. But are these countries, mostly developing, ready for the tough trade competition posed by the region’s economic giants China and India? The Philippines has been at the forefront of the major negotiations for free-trade agreements (FTAs) concluded by the 10-member Association of Southeast Asian Nations (Asean) the past year, but like its fellow developing countries, must brace for the rough winds of competition as these accords start to take effect this month.
FTAs, Atiga
Asean countries signed and completed FTAs in 2009 with countries like China, South Korea, Japan, Australia and New Zealand, as well as India. The free-trade deals were implemented simultaneously on January 1, 2010. At the same time, while bracing for free-market competition with Asian neighbors, the 10-country bloc will also implement this January the Asean Trade in Goods Agreement (Atiga). The deal was signed in November 2007 replacing the 1993 Asean Free-Trade Area (Afta). It seeks to eliminate tariffs on almost 90 percent of products within the region and prepare the member-countries for an Asean Economic Community by 2015 for six countries—Malaysia, Indonesia, Thailand, Singapore, Brunei and the Philippines—and 2020 for Cambodia, Laos, Myanmar/Burma and Vietnam. Anna Robeniol, head of the External Economic Relations Division of the Asean Secretariat in Jakarta, said the region faces a lot of challenges in 2010 with the implementation of the free-trade deals. She said the free-trade deals were all anchored on agreements focused on investments and services to enable Asean economies to prepare for the economic integration by 2015.
It was China’s interest in Asean that moved many developed countries to enter into similar free-trade deals with the regional bloc, she added. It was soon followed by dialogue partners South Korea and Japan. The Asean economic integration by 2015 is envisioned to establish a single market and production base for the 10 members. It seeks to promote competitiveness in the region and bridge development gaps among members.
RP least prepared for Asean free trade
However, Robeniol admitted that the Philippines is one of the countries least prepared for Asean free trade and the tariff regime within the region under Atiga. She told a group of journalists from Asean countries, in a briefing in late 2009, that the level of maturity among the member-countries remains low, as there are “serious pressures” from the private sector, owing to tariffs being brought down to zero. “Many of the industries have been very complacent over the years, and relied too much on tariff protection,” said Robeniol, reacting to complaints of private companies on their lack of preparedness for the free-trade deals. She also argued that big industries have “relied too much on their lobby abilities, and there was no time to prepare for tariff elimination.” As the regional bloc braces for the two economic dragons, similar free-trade deals are in the pipeline, albeit the work is stalled by the linerging issues raised in connection with the human-rights violations in Burma/Myanmar. Robeniol said the European Union, along with the United States and Canada, is reluctant to push for free trade with Asean owing to serious concerns on the human-rights atrocities in Burma/ Myanmar.
Staunch political, security alliance with US
The Philippines has also led the regional bloc to push for a stronger political and security engage-
ment with the United States. Washington is apparently seeking to use Asean as a platform for regional engagement due to the looming threats of alliance between Burma and North Korea. In October, Manila hosted the preparatory meeting for the inaugural Asean-US Summit that was held in Singapore. Most of the issues discussed include regional security, climate change and counterterrorism. The hosting of the meeting was also an affirmation of Manila’s staunch political and security alliance with Washington. Senior officials from Asean and the US also set the platform for discussions for the visit to Manila of Secretary of State Hillary Clinton in November. In that visit, Clinton emphasized the importance of maintaining a security alliance with the Philippines under the Visiting Forces Agreement (VFA). Some senators aired concern over the treaty after the VFA, signed by the two countries in 1999 as part of the Mutual Defense Treaty, was tested with the alleged rape of a Filipina by US serviceman Daniel Smith in the former US military facilities in Subic, now a free port. Clinton also affirmed Washington’s commitment to help the Philippine government in counterterrorism efforts in Southern Mindanao through the continued presence of US troops in the Balikatan exercises. Western superpowers, led by the US, believe that engaging Asean is the best way to contain regional threats, such as the strong nuclear alliance involving North Korea, China and Burma. Robeniol believes that in its 42 years of existence, Asean has provided a platform for superpowers to converge and discuss security issues. She said the US is actively engaged in the Asean Regional Forum (ARF), where China and North Korea are also members. But economic engagement with Asean is limited to its dialogue partners— China, South Korea, Japan, India, New Zealand and Australia.
Slashed DFA budget
Despite having so much on its plate—both in
terms of economic diplomacy and regional security alliance issues—the Philippine Department of Foreign Affairs (DFA) saw its budget emasculated, yet again, in 2009. It had proposed to host the secretariat of the newly created Asean Intergovernmental Commission on Human Rights in Manila, as well as the regional headquarters of the United Nations Development Program (UNDP). However, its proposed 2010 budget has been slashed by more than P6 billion. The DFA asked for a 2010 budget of P19 billion, but the Department of Budget and Management approved only P12.394 billion, even lower than the current allocation of P12.543 billion. Foreign Affairs Secretary Alberto Romulo said the department needed a total of P424.480 million to establish the Asean human-rights headquarters in Manila—estimated to cost P350 million—while the UNDP office is expected to cost P15.4 million. The remaining P59 million will cover foreignexchange fluctuations.
Undocumented workers
As an agency tasked to protect the interests of some 8 million overseas Filipino workers (OFWs) abroad, the DFA finds it difficult to contend with its meager budget, particularly in dealing with the cost of repatriation of hundreds of undocumented workers. Just before the year ended, the department repatriated close to 200 undocumented Filipino workers from Beirut, Jeddah and Damascus. Most of these undocumented workers had already served detention for six months or more due to immigration-related offenses. However, even after their detention, they could not go home as the DFA had to raise funds for their repatriation. The repatriation of some 144 undocumented OFWs from Lebanon cost the DFA some $118,000 for airfare and immigration costs. The DFA has also been lobbying for a higher budget to attend to the welfare of Filipino workers in detention, like providing lawyers during trials. The Philippines is the world’s third-largest
source of migrant workers, next to India and China, and officials always make a big deal about how, with more than 8 million of them deployed abroad, remittances have shored up the economy for nearly four decades. In the first eight months of 2009, the Bangko Sentral ng Pilipinas said remittances from overseas Filipinos coursed through banks reached $11.3 billion; and the year-end total is expected to reach $19 billion. Yet the “goose that lays the golden egg,” it seems, has not deserved the proportional budget that would allow officials to tend to its needs. Foreign Affairs Undersecretary Esteban Conejos Jr. of the Migrant Workers Affairs Office disclosed that there are 800 to 1,000 OFWs currently detained. Most of them face immigration-related cases like traveling with no visa, fake visa or overstaying. The DFA is also closely monitoring 85 active death-penalty cases of Filipino workers abroad. At least 60 of these cases are drug-related offenses committed in China, where serious drug crimes often get the death penalty; the rest are murder charges, mostly in the Middle East.
Internal crisis
As the department continues to wage battle to improve the welfare of OFWs abroad, it suffers an internal crisis as career diplomats protest the increasing appointment of noncareer ambassadors. Close to year-end, diplomatic frontliners, led by the Union of Foreign Service Officers, protested the growing number of political appointees in the DFA. The crescendo rose after Secretary Romulo fired Victoria Bataclan as head of the DFA Office of the European Affairs—coincidentally, just after she led diplomats in protesting the growing number of noncareer ambassadors in key diplomatic posts. Bataclan has been on floating status since October. TheseniordiplomathadwrittenPresidentArroyo and complained about the appointment of Lakascontinued on a5
Swordplay with one hand tied
Local industries start the year with the burden of increasingly higher business costs, while competing with foreign counterparts favored by new trade deals. By Max V. de Leon Reporter LOCAL industries spent much time and effort in 2009 to persuade—in vain—the government to negotiate the deferment of the scheduled elimination of duties on over 90 percent of the country’s tariff lines for intraregional trade starting January 2010, pursuant to the Asean Trade in Goods Agreement (Atiga). Citing various reasons such as cost competitiveness, the financial crisis and even the twin typhoons that ravaged parts of the country in October, the different business groups closed ranks in saying that domestic industries should be given two to five years of reprieve from the tariff elimination, lest they be wiped out by their more competitive counterparts from other countries in Southeast Asia. But all the talk about suspending the Asean tariff-elimination scheme is now water under the bridge after Malacañang issued Executive Order 850 in the last week of December, effectively bringing down to zero the duties imposed on products included in the Philippines’ regular list of tariff lines under Atiga. Now, businesses in the country should look ahead and start doing some serious assessment on their chances of competing—assuming they can still compete under a fully liberalized Asean trade regime, experts said. “Businessmen should recognize what areas they could excel in, instead of pursuing a business
that cannot compete at the international level. If we cannot compete, we close shop. If we don’t want to close shop, then we look for other measures to survive, including the support mechanisms that we can get from the government,” Francis Chua, newly elected president of the Philippine Chamber of Commerce and Industry, told the BusinessMirror. It is inherent, he explained, for governments to find ways to protect their respective industries, in ways that would not go against the rules of the World Trade Organization. These, Chua said, include stricter product standards and requiring import-shipment surveys at the ports. “As long as we in business maintain good relationship with the government, it will be responsive to our issues,” Chua said. On the part of the businessmen, Chua said it is better to shift to sectors where the Philippines has the advantage in, particularly business-process outsourcing, electronics and semiconductors, and mining. Jose Sereno, chairman of the international trade committee of the Federation of Philippine Industries, said the general attitude now of domestic manufacturers is to brace for the onslaught of increased imported competition, whether they like or not. “We have no choice. We just have to compete or die.” Still, Sereno said domestic industries are disappointed with the government’s refusal to listen to their pleas to negotiate for the deferment of the
Atiga schedule. “Government officials are also saying that we just shut down our operations if we cannot compete. That is easy for them to say because they are not the owners. But they should keep in mind that the Constitution also pushes an industrialization program that the state has to protect, promote and develop. With our cost of doing business, the state of infrastructure and governance, we will not be competitive in any manufacturing activity for the domestic market,” Sereno said. Sereno said only those manufacturing activities located in the special economic and export-processing zones are likely to prosper in the country because of the numerous perks that locators are getting, topped by the option to pay the minimal 5-percent tax on gross revenues in lieu of all local and national taxes. High cost of doing business The uncompetitive cost of doing business in the country is also being blamed for the low investments the Philippines is registering compared with other Southeast Asian states. In 2009, for instance, the Board of Investments (BOI)—the top investment-promotion agency in the country—reported that it failed to reach its target to at least equal the P287 billion in fresh investments that it approved in 2008. The BOI failed to grow its new investment registrations despite coming out with a new-look Investment Priorities Plan (IPP) for 2009 that included a contingency list, which grants perks
to companies that will maintain investment and retain jobs; those that will retain investment and increase jobs; those that will increase investment and retain jobs; and those that will increase investment and increase jobs. As for the regular list, the new IPP will give incentives to new projects falling under infrastructure, agriculture/agribusiness/fisheries, engineered products, tourism and strategic investments, and research and development (R&D). Infrastructure includes, among others, logistics, power and mass housing. Engineered products cover basic iron and steel facilities, shipbuilding, machinery and transport equipment. Strategic investments cover those projects that have $300 million in minimum investments, or will hire at least 1,000 workers, or will employ new technology. R&D includes training facilities and centers of excellence. New projects of micro, small and medium enterprises will also qualify for incentives, provided they are not engaged in services, except those identified in the current listing, in smallscale mining, and are violative of public morals. Included in the mandatory listings are all export activities and those covered by other laws such as the Renewable Energy Act (pending the release of its implementing rules and regulations), Solid Waste Management Act, Clean Air Act and oil-deregulation law. Better figures for Peza In contrast, the Philippine Economic Zone Au-
thority (Peza) reported a 13-percent hike in approved new investments for 2009 to P175.36 billion. In Sereno’s view, the government should also do more to protect the investments of industries catering to the domestic market, and not just devote all its attention to the export-oriented locators in Peza-accredited zones. There are, he stressed, allowable nontariff barriers the government can employ to help domestic manufacturers from getting wiped out by imported competition. Also, he said the state should act promptly on the trade remedies that distressed industries are seeking, particularly the safeguard and antidumping measures. In August the local makers of steel angle bars managed to persuade the government to impose a safeguard duty on their imported competition because the surge in imports caused local production to shrink to 37,727 metric tons in 2008 from 106,699 metric tons in 2005. Malacañang issued an order slapping a P7.70-per-kilo safeguard duty on imported steel angle bars. More important, Sereno said the country badly needs the Philippine Trade Representative Office (PTRO) to serve as the main agency to oversee all trade negotiations and issues the Philippines is a party in. He said the industries would not have been put in a quandary by the series of far-reaching agreements the Philippines entered into had the bill creating the PTRO been enacted years back. continued on a5